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The Netherlands is a medium-sized European country with a population exceeding 16million inhabitants in 2002. It has an open economy depending heavily on foreign trade.In 2001, the Dutch gross domestic product (GDP) amounted to 429 billion euros, 71%coming from service activities and 26% from industrial activities. In 2001, theNetherlands showed a positive trade balance with exports equal to 280 billion euros andimports to 257 billion euros. The predominant industrial sectors are food processing,chemicals, petroleum refining, and electrical machinery. The labour force in theNetherlands amounts to 7.2 million people (2000 figures) of which approximately 3%are unemployed. However, since the economic recession the Netherlands has beenfacing increasing unemployment and inflation figures.

The gross domestic expenditures on R&D (GERD) have shown an increase since theearly 1990s. The figure in 2000 was 7.8 billion euros. This means a growth of almost34% compared to 1994. However, compared to 1999 this is only a growth of 3%. In2000, the Dutch R&D intensity of 1.94%, in terms of GERD as percentage of GDP, wasbelow the OECD average (2.24%), but above the EU-average (1.88%). The privatesector contributes most to the R&D intensity in 2000 as it accounts for 1.11 percentagepoints of the R&D intensity. However, this is considerably lower than the EU andOECD figures (1.21 and 1.56%). The public sector, i.e. universities and researchinstitutes, accounts for almost 0.84 percentage points of the R&D intensity. Althoughthe R&D intensity of the public sector has significantly decreased since 1993, it is stillfar above the EU and OECD figures (0.67 % and 0.68%).

National policies

Profile of national biotech innovation policies in the period 1979 - 2004In the 1980s, creating a strong biotech R&D structure had a high priority in TheNetherlands. Two biotech R&D programmes were set up (the Innovation OrientedResearch Programme Biotechnology – IOPb, and the Programmatic Industry RelatedTechnology Stimulation on Biotech - PBTS) and industry research was sponsoredconsiderably. After this period of biotech dedicated policies, Dutch technology andinnovation policies shifted in the early 1990s from dedicated towards more genericpolicies. New programmes had a generic character and existing dedicated programmes(IOPb and PBTS) were transformed into generic programmes, open to all technologyfields. Commercialisation of biotechnology was a mentioned as a priority in nationalinnovation policies, but this was mainly implemented through the support of nationalnetworking activities between academia and industry, initiated by actors in the field.

It was only in 1998 that the Dutch government focused its innovation policies onbiotechnology again. The Dutch government, in particular the Ministry of EconomicAffairs, felt a certain sense of urgency in stimulating the biotechnology sector after theresults of a government-sponsored benchmark had been published. The main conclusionof this benchmark - comparing the Dutch entrepreneurial bioscience industry with sixother regions in the world - was that many conditions for growth such as financing andincubator facilities were missing in the Netherlands. In 1999, the Ministry of Economic

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Affairs presented the Life Sciences Action Plan 2000-2004. The main goal of theBioPartner programme was to establish at least 75 new life science start-ups in theperiod 2000-2004. The total budget amounted to 45.3 million euros.

In 2000, the Dutch industry and public sector research organisations presented the‘Strategic Action Plan Genomics’ for building a strong research infrastructure in thefield of genomics. An advisory committee was assigned to investigate the actual needfor such investments and the urgency of public financial support. This TemporaryAdvisory Committee for the Genomics Knowledge Infrastructure advised the Dutchgovernment to invest heavily in genomics research and infrastructure, thereby followingan integrated approach that includes commercialisation and the social and ethicalaspects of genomics. Based on this advice, the Dutch government presented in 2001 itsview in the policy report ‘Genomics Knowledge Infrastructure’. This resulted in theNetherlands Genomics Initiative (NGI), which is responsible for the execution andmanagement of a national genomics strategy, with a budget of 189 million euros for theperiod 2002-2007.

In the period 1981-1993, the Dutch government invested more than 178 million euros inbiotechnology research, mainly through the IOPb and PBTS programs. Between 1994and 1998, more than 150 million euros were allocated to biotechnology researchthrough several public instruments and programmes. Additionally, in the same period,charity funds provided 75 to 100 million euros for biotechnology related research(Enzing et al, 1999).

Policy instruments and funding for knowledge base supportThe main programmes dedicated to biotechnology research in the period 1994-2004 areABON, a number of NWO research programmes, and the programmes under thesupervisions of NGI. Although the 1990s are very much a period when Dutchinnovation policies were mainly characterised by their generic character, a number ofDutch biotechnology companies and public research organisations had been successfulin attracting some extra public funds in 1991 for the Association of BiotechnologyCentres in the Netherlands (ABON). The goal of ABON was to keep and strengthen thescience base created by the IOP Biotechnology. ABON ran until 1999 and had a budgetof 15.2 million euros including funding by government.

During the mid 1990s, NWO, the Dutch research council, ran two basic researchprogrammes in the biotechnology field: the ‘Structural/functional relationbiomolecules’ programme (1995-2003) and the ‘Computational chemistry ofbiosystems’ programme (1996-2002). They had a budget of respectively 2 million eurosand 1.3 million euros. Like most NWO-programs they are response mode programmesthat stimulate high quality research.

In 1999 NWO initiated the BioMolecular Informatics (BMI) programme and theGenomics programme. In 2000, the Ministry of Economic Affairs started the InnovationOriented Research Programme (IOP) Genomics. The IOP genomics will run for eightyears; the budget for the first phase (2000-2004) is 20.4 million euros. The IOPGenomics targets strategic and pre-competitive industry-oriented fundamental researchat universities and public research institutes.

The NGI started its activities in 2002. NGI is formally responsible for the coordinationof all national genomics instruments, including the IOP Genomics and the NWOprograms BMI and Genomics. One of the tasks of NGI is to establish genomics Centres

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of Excellence that perform high level research in specific fields and have an advancedgenomics research infrastructure. The centres also offer education and training andperform research into societal aspects. In 2002, four Genomics Centres of Excellencewere selected. In January 2003, NGI started the HORIZON programme that stimulatesexcellent and visionary fundamental research in genomics and biomolecularinformatics. In 2004, two Technology Centres (BioInformatics and Proteomics) andfour Innovative Clusters will be set up; they will be financed by additional funds (99million euros) from the so-called Bsik programme.

Besides these dedicated programmes, biotechnology research groups could also joinhorizontal science and technology schemes, especially those that targeted themes in thearea of human health or food in which biotechnology research is an important element.Most of these schemes were oriented to fundamental research and issued by NWO.Moreover, several R&D supporting schemes targeted the stimulation of industrial R&Dand R&D co-operation, e.g. by providing subsidies for R&D projects and tax reductionsfor employing scientific personnel. Additionally, two horizontal initiatives started in thelate 1990s, aiming at improving the general conditions of pharmaceutical research: theNetherlands Federation for Innovative Pharmaceutical Research (FIGON) and theSteering Group Orphan Drugs.

Policy instruments and funding for commercialisation supportIn the period 1994-2004 three instruments dealt with the commercialisation ofbiotechnology: BioPartner, Mibiton and STIGON. BioPartner includes networkinginstruments, subsidies for formulating business plans, incubators, research facilitiessupport, and risk capital to life science start-ups. The BioPartner programme runs untilend 2004. Some of the BioPartner instruments will be integrated into a new publicorganisation that will stimulate entrepreneurship and technology-based start-ups ingeneral, TechnoPartner. Mibiton started in 1994 with a subsidy of 10.8 million eurosfrom the Ministry of Economic Affairs. It provides financial support for the purchase ofhigh-tech research equipment at universities and public research institutes on the basisof facility sharing with private companies. The Mibiton programme proved especiallyuseful for starting firms. The Support Programme for Innovative Medicine Researchand Entrepreneurship in the Netherlands (STIGON) is a scheme that supports(bio)pharmaceutical start-ups based on innovative concepts in medicine research. Itsmain target group is scientists at universities and public research institutes. The totalSTIGON budget amounts to 8.8 million euros, including matching funds.

Generic instruments aiming at stimulating commercialisation of technology in generalwere rather limited in the period 1994-2004. Dreamstart is a public initiative initiatedby the Ministry of Economic Affairs targeting high-tech start-ups by providing supportin networking activities and facilitating access to information and consulting services.Additionally, the Subsidy Infrastructure TechnoStarters facilitates access for high-techstart-ups to research facilities at universities and research institutions.

Instruments with a socio-economic and/or ethic dimensionSince 1993, five nation-wide public debates have been organised for discussing specificbiotechnology issues. The debates focused on topics like genetic modification, geneticresearch, cloning, xeno-transplantation and the application of biotechnology in food.Furthermore, the NGI has set up the Centre for Society and Genomics with a four-yearresearch and education programme, and has a specific research scheme ‘Socialcomponent of genomics research’ (set up by NWO). Additionally, the Genomics

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Centres of Excellence are also obliged to include socio-economic and ethical aspects intheir research program.

Structure and dynamics of the national biopharmaceutical and food biotechnologyinnovation systems

Public biopharmaceutical R&D systemPublic biopharmaceutical R&D in the Netherlands is mainly performed in graduateresearch school of universities and in research institutes. In 2003, 18 graduate researchschools were (partly) active in biopharmaceutical research. This number has been stableover the last years. Public biopharmaceutical research is also performed by ten publicresearch institutes of which seven target fundamental research and three target appliedresearch. Academic research is mainly funded by the Ministry of Education, Cultureand Sciences; a considerable part through the Dutch research council, the NetherlandsGenomics Initiative and the Royal Netherlands Academy of Sciences. Applied researchand commercialisation is mainly funded by the Ministry of Economic Affairs, mainlythrough programmes managed by the Senter agency and the BioPartner instruments.The other ministries mainly co-fund these programmes and funding organisations.

Public food biotechnology R&D systemThe Wageningen University and Research Centre is one of the most important researchcentres for Dutch food biotechnology research. There are four graduate schools and fivepublic research institutes active in food biotechnology research. In addition, foodbiotechnology research is carried out in the Top Institute (Wageningen Centre for FoodSciences) and in the recently set up genomics Centres of Excellence. The fundingsystem is similar to that for biopharmaceutical research. A specific characteristic is theco-operative (pre-competitive) R&D performed by public research institute anduniversities for the food industry. In addition, large food companies participate in publicresearch programmes and the Top Institute and set up research programmes togetherwith the government.

Biopharmaceutical business systemDuring the period 1994-2001, the number of pharmaceutical firms fluctuated around100. The most significant Dutch pharmaceutical firms are Organon and thePharmaceutical Products Group of the Dutch multinational DSM. The Dutch subsidiaryof Solvay Pharmaceuticals is another important player. The majority of thepharmaceutical firms in The Netherlands is a subsidiary of major foreignpharmaceutical companies that have production, logistics and/or research facilities inthe Netherlands. The total employment in the Dutch pharmaceutical industry in 2001was estimated at 15,100 jobs and increased with 3.5% compared to 1994.The annual investments in pharmaceutical R&D in the Netherlands have increasedsignificantly: from 198 million euros in 1994 to 401 million euros in 2001 (Nefarma,2003, based on CBS figures). The number of employees in pharmaceutical R&D in theNetherlands also increased considerably: from 2,082 jobs in 1994 to 3,077 in 2001(CBS, 2003c).

Since 1994, a considerable number of dedicated biopharmaceutical firms has beencreated. In 1994, only 18 pharmaceutical and fine-chemical firms dedicated tobiotechnology existed. In 2001 this amounted to almost 80 firms, representing roughlytwo thirds of the total population of dedicated biotech firms in the Netherlands (Enzinget al., 2002b). The majority of the dedicated biopharmaceutical firms is specialised in

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niche-markets, niche-technologies or specific activities within the pharmaceutical R&Dprocess, such as drug discovery, lead optimisation and drug delivery. Very often, theyare supplier of specific technologies or research partner to the traditionalpharmaceutical firms and larger (foreign) biopharmaceutical companies. The majorityof dedicated biopharmaceutical firms has shown very limited growth in terms ofemployees. The total employment for the dedicated biopharmaceutical firms in 2001 isestimated at 1,764 jobs. This means an average of less than 23 employees per dedicatedbiopharmaceutical firm (Enzing et al., 2002b). The R&D intensity of these firms ishigher than that of the pharmaceutical firms. In 2001, all dedicated biotechnology firmsin the Netherlands, of which the biotech firms in human health form the lion’s share,invested almost 73 million euros into R&D (realising a total turnover of 123 millioneuros) (Enzing et al., 2002b). Moreover, 60% of the total labour force employed by thededicated biotechnology firms is in research and development (Enzing et al., 2002b).

Some 30 clinical trial organisations, mostly private companies, are active in theNetherlands. They support public research organisations and pharmaceutical companiesthrough developing and monitoring of new clinical trials, performing (parts of) theclinical study, managing clinical data and provisioning statistical support or (co)writingthe final clinical study reports. The number of (pre)clinical trials conducted in theNetherlands has been significant since years with 640 studies in 2002. Nevertheless, adecrease in (pre)clinical trials has been occurring since 2000, most considerably inphase II.

Food biotechnology business systemThe agrofood industry is one of the main industrial sectors in the Netherlands with atotal number of companies in the food industry of 5,090 in 2001. This is a decrease of17.4% compared to 1994 (CBS/Statline, 2003). Well known Dutch companies areUnilever, Numico, CSM and DSM (ingredients), as well as large dairy companies, suchas Firesland Coberco Dairy Foods and Campina/DMV. Most food companies are rathersmall; in 2001, only 35 companies had more than 500 employees. In 2001, the totalemployment in the Dutch food industry (including tobacco) amounted to 129,200 fulltime equivalents (ftes). In 2001, the total value of sales of the food industry was 37.5billion euros; an increase of 22% compared to 1994. The investments in food R&D(including tobacco) have increased considerably: from 182 million euros in 1994 to 269million euros in 2001. The employment in R&D in the food industry is estimated at2,989 ftes in 2001, compared to 2,523 ftes in 1994. In 2000, 174 food companiesperformed R&D activities and these activities are mainly concentrated in the largercompanies (more than 200 employees); they provide 2,742 of the 3,063 R&D ftes in thefood industry. The Dutch food industry (including tobacco) invests 0.5% of the totalturnover in R&D activities (CBS/Statline, 2003).

Especially the large food and food ingredients companies are active in biotechnology.The number of established food companies that have adopted biotechnology isestimated at approximately 17 companies (Enzing et al., 2002). The number ofdedicated food biotechnology firms is very limited. In 2001, 13 dedicatedbiotechnology companies had activities that were related to the food industry. In 1994,there were four dedicated food biotechnology companies (TNO-STB figures).Dedicated food biotechnology firms develop and produce ingredients for the foodindustry, are active in bioprocessing, and provide analytical services for determinationof compounds, detection of contaminants, and safety control. One company isspecialised in clinical research into novel and functional foods. Most of thesecompanies are not solely dedicated to the food industry, but work for other industrial

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sectors as well. The R&d intensity of dedicated food biotechnology firms is muchhigher than the average R&D intensity of the whole food industry. On average 60% ofthe employees of these firms are performing R&D and for half of these companies morethan 80% of their personnel is active in R&D activities. In 2001, the dedicated foodcompanies employed approximately 285 people (TNO-STB figures).

Biopharmaceutical M&A and R&D collaborationIndustry dynamics in the Netherlands caused by mergers and acquisitions have beenlimited. In 1998, DSM acquired Gist-Brocades, another Dutch multinational and theworld’s largest supplier of antibiotics and specialist in enzyme and fermentationtechnologies. In 2000, DSM acquired Catalytica Pharmaceuticals, a US-based companyspecialised in pharmaceutical intermediates. Akzo Nobel’s Organon acquired theJapanese pharmaceutical company Kanebo in 1999 and Covance BiotechnologyServices in 2001, and sold its subsidiary Organon Teknika, specialised in in-vitrodiagnostics, to the French BioMerieux in 2001.

Considering the dedicated biopharmaceutical firms, only two mergers occurred until2001. It is only after 2001 that merger and acquisition activities in the Dutchbiopharmaceutical industry seem to have intensified: two mergers and three acquisitionsoccurred until the first half of 2003. R&D collaboration is a widespread phenomenon inthe pharmaceutical and biopharmaceutical industries. Approximately 35% of the R&Dpartners of Dutch firms in the biopharmaceutical innovation system are located in theNetherlands (most are public research organisations), the rest mostly in Europe (31%,most are firms) and the US (21%, most are firms).

Food biotechnology M&A and R&D collaborationSince 1994, Dutch food companies have been rather active in mergers and acquisitions.Major acquisitions and mergers concerned the take-over of Bestfoods and Slimfast byUnilever in 2000, the take-overs of GNC and Rexall Sundown by Numico in 1999 and2000, the take-overs by dairy company Melkunie, and the merger of four dairycooperatives into Friesland Coberco Dairy Foods. Main reasons for these mergers andacquisition are the strategy of focusing on specific product groups with a high grossprofit margin and the entry on international markets. The dedicated food biotechnologycompanies were not involved in mergers and acquisitions in the period 1994-2001.

Food biotechnology R&D collaboration in the food industry is mainly nationallyoriented; over 50% of the partners of the food companies in the survey are from theNetherlands. Other partners come from the rest of Europe and the United States.Especially collaborations with small and medium sized companies are a national matter,but collaborations with large firms are more internationally oriented.

Biopharmaceutical demand systemThe expenditures on pharmaceutical products in the Netherlands have increasedcontinuously over the last decades. In addition, the growth of the Dutch pharmaceuticalexpenditures has been stronger than the growth of the total Dutch expenditures onhealth.

The Dutch market for pharmaceuticals in 2002 consisted for 72.2% of branded (or in-patent) pharmaceuticals, for 18.5% of generic (or out-of-patent) pharmaceuticals, andfor 9.4% of parallel imports (Nefarma, 2003). Although the branded pharmaceuticalsstill dominate the market, the generic pharmaceuticals are increasingly gaining a largermarket share (Nefarma, 2003). This development already started during the 1990s due

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to the large number of pharmaceutical patents that expired and due to the governmentpolicy of stimulating the prescription of generic pharmaceuticals.

The market for pharmaceuticals based on biotechnology is still limited. In 2001,approximately 60 biopharmaceutical products were on the Dutch market with insulinrepresenting the largest share (Nefarma, 2002). The expenditures on biopharmaceuticalsare growing annually and have an increasing share in the total expenditures onpharmaceuticals: from 295 million euros in 2001 (8.6% of total pharmaceuticalexpenditures) to 345 million euros in 2002 (9.2%).

Public health policiesFor several years, public health policies in the Netherlands have strongly emphasisedcost containment. In particular pharmaceuticals have been subject to cost containmentmeasures such as the setting of maximum price levels, stimulating the prescription ofgeneric pharmaceuticals and tolerating the parallel import of brand namepharmaceuticals. The continuously rising expenditures on health care in the Netherlandsand its decreasing quality forced the Dutch government to introduce measures toderegulate the system and place more responsibilities at the level of individual actorswithin the health care system. The government acknowledged that targeting cost-containment is not the main solution, but that it has to be combined with measures thatincrease the effectiveness and efficiency of health care in the Netherlands. Therefore,the Dutch government decided in 2000 to commit the central role in the national healthcare system to the health care insurance companies, forcing them to take a more activerole in the reorganisation of the health care system. In addition, the system fordetermining the tariffs of intramural treatments was replaced by the system ofDiagnosis Treatment Combination in 2003. This system entails a specified price for acomplete treatment of the patients, covering the entire process from diagnosis andhospitalisation to the discharge from the hospital. The new system still shows manygrowing pains. The fall of the Dutch government in 2003 has led to considerable delayin the development and implementation of the system. Moreover, it remains unclearhow pharmaceutical products will fit into the concept of Diagnosis TreatmentCombination and what the consequences will be of the new health care system for newand expensive pharmaceuticals, e.g. biotherapeutics (Nefarma, 2003; BioFarmind,2002).

Market access of pharmaceutical productsMarket access of new pharmaceutical products is mainly covered by internationalregulations that have been implemented in the Dutch Medicines Act. The MedicinesEvaluation Board, the Dutch authority responsible for the evaluation and issuing ofmarket authorisations for pharmaceutical products determines whether or notpharmaceuticals should be made available on prescription or not. In general, twoalternative routes exist for authorisation of new pharmaceutical products: the centralisedroute at the European level by the European Agency for the Evaluation of MedicialProducts (EMEA) and the decentralised route at the national level. For pharmaceuticalsbased on biotechnology only the centralised route at the EMEA is possible.

The promotion of the prescription of generic drugs has been an important element in theDutch health care policies. However, the concept of generic drugs might proveproblematic in the case of biopharmaceuticals (Schellekens and Brouwer, 2002, andNefarma website). In contrast to the pharmaceuticals that are based on chemicalsynthesis, no generic copies have been developed and introduced forbiopharmaceuticals so far. First of all, this is because most biopharmaceuticals are still

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covered by a patent, which makes the development of a generic copy impossible.Second, it is not clear yet which specific requirements the authorities will demand fromthe dossiers for generic copies of biopharmaceuticals. A complicating factor is that it isextremely difficult to prove that a biogeneric drug has the same properties and effects asthe original biopharmaceutical drug. As a consequence, extensive clinical evidence willbe necessary, in addition to a study of bio-equivalence, before the registrationauthorities will declare the new biopharmaceutical as a bio-equivalent copy of theoriginal biopharmaceutical. This leads to very elaborated, lengthy and expensivedevelopment processes for biogenerics that are comparable to the development processfor a totally new drug. This is relatively new for the development of generic drugs andmakes the development of biogenerics less attractive (Schellekens and Brouwer, 2002,and Nefarma website).

Patient organisationsA specific feature of the Dutch biopharmaceutical innovation system is the presence ofa large number of patient organisations. At least 400 associations and organisationsexist for patients with a specific disease or disorder (Smit, 2003). A number of them isunited in umbrella organisations like the Dutch Genetic Alliance (VSOP) andAssociation for people suffering from chronic diseases and for handicapped people.Generally speaking, patient organisations represent patients’ interests by improvingawareness and understanding of diseases and disorders. The main activities of patientorganisations are to spread information among their members and to communicate withgovernment, public health authorities and welfare services in the political arena(Herxheimer, 2003; VSOP website). Patient organisations try to influence the decisionmaking processes, for example in the case of listing a new but more expensive drugunder the public insurance schemes or the stimulation of specific health research areas.Patient organisations also communicate with pharmaceutical companies, especially withthe more integrated (bio)pharmaceutical firms.

Food biotechnology demand systemThe food industry in general is a rather market-driven industry. In the Netherlands, thefood industry introduced hundreds of products every year, mainly driven by ideas thathave been put forward by market development departments. The consumer determinesthe commercial success of these products. The food industry considers the lack ofpublic support for food biotechnology as one of the main barriers in the furtherdevelopment and application of biotechnology in food. Already in the beginning of the1990s, the industry started a discussion with consumer organisations and other nongovernmental organisations. These informal consultation processes resulted in severalagreements on various issues, e.g. labelling. Nevertheless, the support for biotechnologyin food has only decreased since then, especially in the period 1999-2002 (StichtingConsument en Biotechnology, 2003, based on European Commission, 2003b). Theindustry realises that more work is needed to increase the support of consumers for foodbiotechnology. The focus on the cost benefits of biotechnology in food has shifted to afocus on consumer benefits, In addition, the food companies increasingly involvescientists, key opinion leaders and health professionals in their innovation processes.According to the industry, a stronger involvement of the demand side in biotechnologyinnovations will be one of the major challenges for the coming years (BureauBlaauwberg, 2003).

The market access of new food products based on food biotechnology is strictlyregulated by both European and national legislative frameworks. The process forauthorisation is a timely and costly process with much insecurity. In 1998, a European

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moratorium on the introduction of new GMOs was installed. Since then it has beenimpossible to introduce products that contain new GMOs. Only in July 2003, newdirectives on GMO food and feed have been adopted by the Council of AgricultureMinisters of the European Union. The new directives give new guidelines forauthorisation and labelling. The European Food Safety Authority will manage thecentralised authorisation procedure. This intends to make the authorisation procedureshorter, more transparent and less complex. It is expected that the moratorium will belifted as soon as the directives are effectuated.

Key drivers and barriers in biopharmaceutical and food biotechnology innovations

Public IPRs and technology transferDutch universities have had technology transfer offices since the late 1970s to supportuniversity-industry interaction and provide assistance to researchers in IPR issues.However, their efficacy in commercialising biotechnology is often considered asinsufficient (Kern et al., 2003; OECD, 2003). Technology transfer between the Dutchpublic R&D system and industry is limited, in particular when it concerns patenting andlicensing activities (CBS, 2003c). A prominent reason is the lack of a combination ofexpertise in commercial, legal and specific biotechnological issues. This is aggravatedby the limited size and small budgets of most technology transfer offices. Acomplicating factor in relation is the heterogeneity of the academic IPR system in theNetherlands. Each university is relatively autonomous in developing its own IPRsystems and policies.

Small and large firmsPharmaceutical companies have extensive experiences in activities in the down-streamstages of the innovation process, such as manufacturing, distribution, marketing andregulatory affairs. They are highly experienced in these ‘disciplines’ and can assistsmall firms on these matters. Pharmaceutical companies are also important clients ofsmall high tech biopharmaceutical firms as they buy the highly specialised scientificand technological knowledge and tools that are too costly to develop internally. Fromthis perspective the very limited number of large integrated pharmaceutical companiesin The Netherlands can be considered as a serious problem. Proximity is an issue and asmost small firms work in business-to-business markets with larger pharmaceutical firmsas their main clients, they have to spend extra efforts and costs in building up relationswith clients abroad. Especially for small firms this can have a negative effect on thesurvival and - in a later stage – on their successful exit strategies.

The relations between large food companies and small dedicated food biotechnologyfirms show a different picture. The interviews with the large food companies showedthat these companies do not really have research collaborations with Dutch dedicatedfood biotechnology companies, except for clinical trials for functional foods. Accordingto the large firms, an important reason for this is that the dedicated food biotechnologyfirms lack the expertise and technologies the large firms need. On the other hand, thesmall firms mention as reason for the limited co-operation their lack of an appropriatetrack record; they are still too small and too young to be attractive research partners. Toopen this vicious circle the small firms will need to work on convincing the largecompanies of their capabilities or search for other options to become more experienced.

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Human resourcesKnowledge is also acquired by attracting high quality human resources. The availabilityof and access to qualified human resources is a growing bottleneck to the Dutchbiopharmaceutical sector. This not only refers to the limited number of studentsgraduating in life sciences but also to the rapid increase of biotechnology firms world-wide, which leads to a higher demand for skilled labour. In particular small and mediumsized firms and public research organisations encounter difficulties as they often are notable to offer the same employment conditions and career opportunities as larger firmscan. The areas in which most significant shortages emerge are laboratory support andthe scientific disciplines bio-informatics, genetics, genomics and proteomics. Forindustry it proves especially difficult to attract staff with both scientific and managerialexpertise.

Private financingThe Dutch market for private equity is considered mature, increasingly competitive andcan be characterised by a large variety and number of private equity houses. Althoughthe overall level of private equity investments has increased over the years, animportant share is invested outside the Netherlands. The total amount of venture capitalinvestments in biotechnology in the Netherlands in the years 1999-2000 equaled 56.8million euros. Compared to the years 1994-1995 when 19.8 million euros were investedthis means an increase of more than 186% (Kern et al, 2003). The last few years,providers of private capital have become more reluctant to high-risk investments inbiotechnology. Biotechnology companies, including biopharmaceutical and foodbiotechnology companies, with a business model that is mainly based on investing inR&D, encounter difficulties in raising external financial resources as investors demandincome. The first years after the turn of the century are likely to become critical tobiotechnology firms in the Netherlands as a substantial gap emerges between publicfunding in the seed and start-up stages and private venture capital for the follow-upstages (Kern et al., 2003).

Laws and regulationsGenerally speaking, both industry and public sector research organisations welcome asound and strict regulatory framework as it contributes to a higher level of quality andinnovativeness of the biotechnology sector (Niaba, 2002). However, the presentregulatory framework in the Netherlands causes a number of serious disadvantages incomparison with other countries. Most of these disadvantages concern the timely lengthof application and decision-making procedures, the lack of transparency andpredictability of procedures, and overlapping tasks and evaluation frameworks of theofficial authorities (Niaba, 2002; BioCollectief en Schenkelaars BiotechnologyConsultancy, 2002). Regulatory and legislative issues cause problems in several areas.In particular the legislative framework for food biotechnology is rather complex andstrict. Not just the European moratorium on the introduction of new GMOs (installed in1998), but also the very strict regulation on deliberate release (field trials) has been aserious barrier for food biotechnology companies. The number of field trials hasdecreased considerably since 1999 and several companies decided to stop their GMOresearch activities in the Netherlands. Another area of strict and impeding regulationconcerns working with animals. Dutch law forbids the application of geneticmodification techniques on animals and obtaining a license is only issued if no ethicalobjections and no unacceptable consequences for the health or well being of animalsexist (the so-called ‘No, unless…’-policies). Moreover, ever since its introduction theDutch government has resisted to the EC directive 98/44/EC on the granting ofintellectual property rights on biotechnology.. The directive still has not beenimplemented at the beginning of 2004, whereas the directive 98/44/EC should have

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been implemented on the 30th of July 2000 at latest. This negative attitude isolates theDutch biotechnology sector within Europe and affects the overall climate forbiotechnology in the Netherlands considerably.

EntrepreneurshipIn general, the Netherlands is characterised as a country with a lack of entrepreneurialspirit. This hinders considerably the commercialisation of new scientific knowledge,including biotechnology. Scientists are not very willing to leave their academic positionand to get fully engaged into business activities (Ernst and Young, 1998).

Systemic imperfections and policy implications

The national case study has revealed various factors that affect the operating of theDutch biopharmaceutical and food biotechnology innovation systems. This sectionpresents the main systemic imperfections and sketches the implications for publicpolicies. As the Dutch government presented early 2004 the outlines of its policies forstimulating the life sciences sector in the Netherlands (Action Plan Life Sciences 2004-2007), several of the imperfections that have been identified in this study will beaddressed by public policies in the period 2004-2007. Additional recommendations areformulated.

Although the Dutch biotechnology science base and education system is of high quality,there is an imbalance in knowledge production as there has been strong growth inapplied research and in development of technology and hardly in fundamental research.This could ultimately lead to a depletion of the science-driven biotechnologyknowledge base and to increasing difficulties for the Dutch research sector and industryin keeping up with international scientific developments. Moreover, present policies arehighly focussing on genomics. However, life sciences and biotechnology entail morethan genomics and a post-genomics era will eventually develop. Finally, theavailability of qualified technical staff and researchers is increasingly becoming abottleneck to both the public sector research and industry in general.Recommendation: Policy measures are necessary to sustain a high-quality fundamentalknowledge base in biotechnology. The recently started genomics programme of theNetherlands Genomics Initiative includes strong basic research components and istherefore an important action in this respect. However, it is also necessary to sustainthe fundamental knowledge base in other areas relevant to biotechnology. Moreover,future developments need to be explored and monitored. Related to the availability ofskilled labour, measures are needed to increase the attractiveness of technical andnatural sciences, in particular related to biotechnology. Finally, restrictive regulationsto attract talented and experienced foreign human resources need to be removed orsimplified. These human resources related problems have already been acknowledgedby policy makers in education and S&T policies and actions are being prepared.

There are several systemic failures related to the exploitation and commercialisation ofbiotechnology. First, there is an insufficient exploitation of public sector research, inparticular university research. Exploitation of research is not a high priority in mostuniversities and specific infrastructural instruments like technology transfer officesoften lack the critical mass and the necessary expertise. Differences between theuniversities’ exploitation policies have evolved. Second, the majority of the scientiststhat start their own biotechnology firm has a general lack of managerial skills. Thishas a negative impact on the speed of development of many young biopharmaceutical

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firms in the Netherlands. Third, the limited number of major Dutch pharmaceuticalfirms pressurises the possibilities for small biopharmaceutical firms in creating asignificant home-market with regard to turnover and R&D collaborations. The lack oftrack-record of the dedicated food biotechnology companies makes it difficult toestablish collaborations with large food companies, needed to build up expertise.Recommendation: Governmental action is required to improve the priority given toexploitation of research by universities and public sector research organisations. TheAction Plan Life Sciences and also the latest Science Budget of the Ministry ofEducation address explicitly the problem of insufficient exploitation of public sectorresearch. Consequently, new actions aim to improve the quality of business plans and toinvestigate best-practice concerning organisational and juridical models forvalorisation. Moreover, a new measure is being prepared to subsidise the valorisationand exploitation activities at universities (i.e. ‘Subsidieregeling Kennisexploitatie’).However, additional governmental action is necessary. First, improved co-ordination ofuniversity exploitation policies could increase the sense of urgency felt by universityboards and contribute to inter-university learning processes. Second, the inclusion ofindicators for valorisation and exploitation in university review procedures couldcontribute to prioritisation. Third, apart from the financial means a ‘SubsidieregelingKennisexploitatie’ will offer, biotechnology transfer offices need a combination ofbiotechnological, legal and commercial expertise. Finally, activities of national andlocal government should not only deal with attracting foreign companies to theNetherlands, but also with keeping the Dutch pharmaceutical firms inside theNetherlands.

A systemic failure related to the demand side of the pharmaceutical innovation processis the large and heterogeneous number of small patient organisations. Critical masscould be realised through more co-ordination and interaction between them. Patientorganisations could then have a more active role in the industrial innovation process andin facilitating clinical trails.The market access for food biotech applications is veryrestricted. The new EU directives on GMO food and feed will lead to the abolishmentof the moratorium on GMOs, which has been active since 1998. However, there is stillmuch insecurity about the actual procedures included in the new directives. In addition,there is still no harmonised legislation on health claims on food products. Moreharmonisation and clearer procedures and guidelines will make market access of newfood products less complex and insecure. In general, there is a lack of an appropriatedialogue between the main stakeholders in biotechnology innovation. Publicacceptance for food biotechnology applications is lacking and the public support forthese innovations has decreased since 1994. Open and constructive channels ofcommunication are needed for an improved acceptation of biotechnology.Recommendation: The government should investigate the possibilities of supporting thepatients’ organisations in realising the necessary internal interaction and co-ordinationand should explore how the interaction between patients’ organisations and industrythrough patient-industry networks can be stimulated. The government should strive formore European harmonisation in market access regulation and less complexprocedures. Additionally, incentives need to be introduced to stimulate researchersfrom academia and from biotechnology firms to communicate fairly about theiractivities, by addressing the benefits as well as the risks.

One very important framework condition that is currently hindering the development ofbiotechnology in general is the limited availability and accessibility of risk capital.This lack of risk capital is especially prominent after the first stages of firmdevelopment as a considerable gap exists between the mainly public sources of funding

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for the seed and start-up stages and the sources for follow-up financing provided byventure capitalists. A second inappropriate framework condition is the hindering set ofregulations applied to biotechnology in the Netherlands. A third framework conditionthat is in particular negatively affecting the biopharmaceutical innovation system is theset of public health care policies and related measures. The current and formerpolicies targeting cost-containment are a negative signal for innovative pharmaceuticalcompanies. Also the policy incentives for developing innovative pharmaceuticals in theNetherlands are limited. The last imperfect framework condition is the lack ofinteraction and co-ordination among government departments. Governmentalpolicies in the area of, for example, food, health care and environmental protection andsafety have been inconsistent with the aims of innovation and industrial policies in thefield of biotechnology on several occasions.Recommendation: The Action Plan Life Sciences 2004-2007 announced measures toremove the barriers raised by the lack of risk capital, restrictive regulations and thelack of policy co-ordination. In addition to this, the Dutch government should providemore clarity about the position of innovative but more expensive pharmaceuticals in thehealth care and reimbursement system. In this respect, it also needs to take into accountthe benefits that innovative pharmaceuticals provide and how they can contribute tocost-containment on the long term, e.g. by increasing effectiveness and decreasing thenecessary time of medical treatments. A more systemic policy approach is needed thatcombines the objectives of a competitive pharmaceutical industry and of an affordablepublic health care system. The government should aim for more coordination betweenthe various departments and policies in order to prevent inconsistencies between thebiotechnology policies.

Structure of the report....................................................................................................22

1.4

Country characteristics..................................................................................................22

1.4.1

Size and main industries................................................................................................22

1.4.2

The pharmaceutical industry..........................................................................................23

1.4.3

The food industry...........................................................................................................27

2

Overview of national R&D, technology and innovation policies for biotechnology.......................................................................................................................................32

Figure 3-10 Type of partner and subject of collaboration in food biotechnology.........60

Figure 3-11 Nationalities of partners and subject of collaboration in food biotechnology..................................................................................................................60

Figure 3-12 Type of partner and form of collaboration in food biotechnology.............61

1 Introduction1.1 Background and goal of the OECD-projectThe ‘innovation system’ concept has gained increasing attention during the past tenyears, both from researchers and policy makers. In particular the National InnovationSystems approach has provided a framework for the assessment of the organisation ofinnovation processes, the innovation performance of countries, and the role offramework conditions, including public policy. The OECD has contributed a great dealto our understanding of the innovation systems approach and its relevance for policymaking. The results of OECD studies on innovation systems have been reported in anumber of publications, e.g. National Innovation Systems (OECD, 1997), ManagingNational Innovation Systems (OECD, 1999a), Boosting Innovation: The ClusterApproach (1999b), and recently Dynamising National Innovation Systems (2002a).

One very important conclusion that can be drawn from the OECD’s work on nationalinnovation systems is that too generic public policies can lead to misfits as they are nottuned to the specific characteristics of the technological or sectoral innovation systemsat hand. The development of new policies needs to take into account the specificidiosyncratic properties of an innovation system. These properties are to a very largeextent caused by the specific characteristics of sectors and technologies that constitutethe national system.

This was the reason for the OECD Working Party on Technology and Innovation Policy(TIP) to start in 2002 the project ‘Case Studies in Innovation’. Goal of the project is tounderstand the differences in national innovation systems and to investigate the policyimplications following from sectoral differences in innovation systems. The projectincludes three cases: pharmaceutical biotechnology, knowledge intensive serviceactivities, and energy. The ‘Case Study in Biopharmaceutical Innovation’-part of theOECD-project, wants to contribute to an understanding of the differences in nationalinnovation systems by providing an in-depth analysis of the biopharmaceutical part ofthese systems.

This report presents the analysis of the Dutch biopharmaceutical innovation system.Together with the national reports on the biopharmaceutical innovation systems inBelgium, Finland, France, Germany, Japan, Norway and Spain it will form the basis ofa cross country analysis and an explanation of the national differences. On the basis ofthis the central question of the OECD-project will be addressed.

This question is:“Can we identify important differences and similarities in the structure and dynamics ofnational biotech innovation systems of the participating countries which explain thedifferences in performances of these systems, and what are the policy implications?”

The project focuses on more specific questions dealing with issues that are relevant tobiopharmaceutical innovation systems, in particular: systemic imperfections, systemopenness, demand side factors and systems policies.

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Systemic imperfections can be seen as symptoms of sub-optimal innovation systemsand are judged as being a rationale for innovation policy actions. However, an in-depthinvestigation of these systemic imperfections and their implications for policies is so farlacking for biotechnology. The investigation of these systemic characteristics is one ofthe main goals of the overall research project ‘Case Studies in Innovation’ and thereforeis a main issue in this report.

The concept of national innovation systems implies a definition based on a country’sgeographical boundaries. However, developments in high technology sectors, inspecific in biotechnology, are to an increasing extent realised by international researchand business networks as can be found in international R&D co-operations or thepresence of foreign pharmaceutical multinational companies. This national-internationaldimension of system openness is especially relevant to national policy-making.

Demand side factors play a major role in the successful development of newtechnologies, with biotechnology as the most prominent example. However, in theliterature and research on (national) innovation systems demand side factors havereceived relatively less attention. What are the effects of these demand side factors onthe biopharmaceutical innovation process and how should they be taken into account bythe research, business and policy communities?

A specific objective of the OECD ‘Case Studies in Innovation’ project is to draw policyconclusions with regard to the balance between horizontal innovation policies and morecustomised measures that take into account the specific characteristics of innovationprocesses in the biomedical/biopharmaceutical innovation system.

As the food industry in the Netherlands is a sector where biotechnology has beenwidely implemented and has a considerable size larger then the pharmaceutical sector, itwas decided also to include the food sector in the study. Unlike for thebiopharmaceutical sector, no overall extra data-collection and related analysis could bemade. As a result, the food part of this report could be elaborated less extensively. Inthis report, we speak of biotechnology when issues are related to both thebiopharmaceutical and biotech food sectors. Otherwise, we specifically refer to thebiopharmaceutical or biotech food sectors.

1.2 ApproachTo facilitate comparability across countries, the Biopharmaceutical Focus Groupprepared a guidebook that describes the common definitions, approach andmethodology to be used for the national case studies (Enzing et al, 2002a.)

This methodology, as implemented in the Dutch case study was as follows:

1. A descriptive analysis of the national biopharmaceutical innovation system on thebasis of desk research. This includes a description of the biopharmaceuticalinnovation chain and the types of actors and organisations involved. Moreover, itserves to describe the main framework conditions that affect the outcomes of thebiopharmaceutical innovation process. This first step draws heavily on anextensive literature survey and desk-research.

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2. Bibliometric and patent analysis for measuring the national performance. It alsoserves the identification of the main type of actors and their actual relevance in thebiopharmaceutical innovation process. In the case of patent analysis, data are usedfor patent applications at the European Patent Office. The data collection andcalculations are performed by Fraunhofer-ISI by using the OECD Patent databaseand the Science Citation Index databases in February 2003.

3. Industry survey on R&D co-operation. A questionnaire was sent in February 2003to 193 Dutch companies that were believed to be active in pharmaceutical andagro-food biotechnology; 107 companies returned the questionnaire. From these107, 56 are biopharmaceutical companies and 22 are active in foodbiotechnology1. The survey included both dedicated biotechnology firms (hightech companies specialised in biotechnology and active in R&D and in theapplication in processes/ products and services) and diversified firms (establishedfirms that have integrated biotechnologies in their existing R&D and productionactivities).

4. Interviews with companies, sector experts and demand side actors in the periodMarch – June 2003. In total, 16 persons were interviewed representing fourbiopharmaceutical firms and four firms in the food sector, three industry interestgroups, one patient organisation and one consumer organisation.

The definition of biotechnology used in the project is the OECD-definition2thatcombines a single and a list-based definition. The single definition describesbiotechnology as the application of science and technology to living organisms, as wellas parts, products and models thereof, to alter living or non-living materials for theproduction of knowledge, goods and services.

The biopharmaceutical part of the pharmaceutical system is defined as consisting ofthose actors and activities of R&D-organisations, companies and others that areinvolved in or address one or more of the biotechnology activities mentioned in theOECD definition.

1In the survey, ‘Food’ includes food products and food ingredients, but also specialty chemicals, platformtechnologies and equipment, which have been developed and produced for application in the sectorspecifically. The agro-part of the agrofood chain is not included in this report.2see OECD document no.: DSTI/EAS/STP/NESTI(2001)3/REV2.

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1.3 Structure of the reportThis report aims to describe the main actors and their activities, the institutions andframework conditions in the Dutch biopharmaceutical and food biotechnologyinnovation system, to assess their performance and to draw conclusion that address thequestions of the OECD-project.

The structure of this report follows the structure as presented in the Guidebook of theOECD-project. In the last paragraph of this first chapter a number of relevant countrycharacteristics of the Netherlands, including a brief description of the Dutchpharmaceutical and food industry, is given. Chapter 2 presents the main characteristicsof Dutch public innovation policies and policy instruments in the field of biotechnologyfor the period 1994-2001. It also provides information about the main policy makingorganisations and agencies responsible for the management of national policyinstruments. Chapter 3 discusses the structure and performance of the national system,more specific: the public R&D system and the biopharmaceutical and biotech agrofoodindustries. The assessment of specific framework conditions, and their availability andaccessibility, which are judged particular relevant to innovation, are presented inChapter 4. In Chapter 5, specific elements of the demand side in innovation systems arediscussed, i.e. the national health care system, regulation of market access, the role ofusers and the influence of socio-economic and ethical issues. Finally, in Chapter 6 themain conclusions on systemic imperfections, system openness and the role of demandare drawn. Following from these conclusions, a set of policy implications is presented.

1.4 Country characteristics1.4.1 Size and main industries3

The Netherlands is a medium-sized European country with a population exceeding 16million inhabitants in 2002. It has an open economy depending heavily on foreign trade.In 2001, the Dutch gross domestic product (GDP) amounted to 429 billion euros, 71%coming from service activities and 26% from industrial activities. In 2001, theNetherlands showed a positive trade balance with exports equal to 280 billion euros andimports to 257 billion euros.

The Dutch economy is characterised by its stable industrial relations, moderateinflation, a sizeable current trading surplus and it plays an important role as Europeantransportation hub. The predominant industrial sectors are food processing, chemicals,petroleum refining, and electrical machinery. The agricultural sector provides importantsurpluses for the food-processing industry and for exports. However, the agriculturalsector is highly mechanised and employs no more than 4% of the total labour force. Thelabour force in the Netherlands amounts to 7.2 million people (2000 figures) of whichapproximately 3% are unemployed. For the second half of the 1990s, the Netherlandsshowed an annual growth rate that nearly averaged 4%; however, the economic growthhas considerably slowed down since the millennium.

The gross domestic expenditures on R&D (GERD) have shown an increase since theearly 1990s. The figure in 2000 was 7.8 billion euros. This means a growth of almost34% compared to 1994; however, the growth compared to 1999 is only 3%. The DutchR&D intensity, in terms of GERD as percentage of GDP, has been fluctuating duringthe past years: 2.04% in 1997; 1.94% in 1998; 2.02% in 1999; and 1.94% in 2000. TheDutch R&D intensity in 2000 was below the OECD average (2.24%) but above the EU-average (1.88%). The private sector contributes most to the R&D intensity in 2000 as itaccounts for 1.11 percentage points of the R&D intensity. This is considerably lowerthan the EU and OECD figures (1.21% and 1.56%). The public sector, i.e. universitiesand public research organisations, accounts for almost 0.84 percentage points of theR&D intensity. Although the R&D intensity by the public sector has significantly beendecreasing since 1993, it is still far above the EU and OECD figures (0.67% and0.68%).1.4.2 The pharmaceutical industryThe number of pharmaceutical companies, including producers of pharmaceuticalintermediates, amounted to 115 in 2001 (CBS/Statline, 2003). During the period 1994-2001, the number of pharmaceutical firms fluctuated around 100 (figure 1-1). Themajority of these companies is a subsidiary of major foreign pharmaceutical companiesthat have production, logistics and research facilities in the Netherlands.

The most significant Dutch pharmaceutical firms are Organon and the Dutch subsidiaryof Solvay Pharmaceuticals4. They cover for roughly one third of the total employmentin the Dutch pharmaceutical industry. Both companies have major production and R&Dfacilities in the Netherlands. DSM is another important firm. It is not strictly apharmaceutical company, but its DSM Pharmaceutical Products Group is specialised inthe development and production of chemical and biopharmaceutical intermediates forthe pharmaceutical industry and finished dosage forms. DSM is now the world marketleader in antibiotics and chiral products.

4In the early 1980s, the Belgium-based multinational Solvay acquired Philips-Duphar. Since then, it haschanged its name into Solvay Duphar and has become part of the pharmaceuticals group of Solvay. Itbelongs to the European leaders in the production of influenza vaccines.

Source: Nefarma Annual Report 2002, based on CBS figuresFigure 1-2 Employment in the Dutch pharmaceutical industry (in number of jobs)

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Research and DevelopmentThe pharmaceutical industry invests heavily in R&D. Since 1994, the annual R&Dinvestments by the Dutch pharmaceutical industry have increased significantly,although the latest figures show a relative strong fall (table 1-1). According to the DutchOrganisation of the Research-based Pharmaceutical Industry (Nefarma) at least 8% ofits members’ global turnover is invested in R&D. For some of its members it evenamounts to 15 to 20% (Nefarma, 2002). The number of people employed inpharmaceutical R&D in the Netherlands also increased considerably: from 2,082 jobs in1994 to 3,077 in 2001 (CBS, 2003c).

The R&D intensity is even higher for the small dedicated biopharmaceutical firms. In2001, the dedicated biotechnology firms in the Netherlands, of which the biotech firmsin human health form the lion’s share, invested almost 73 million euros into R&D(realising a total turnover of 123 million euros) (Enzing et al., 2002b). Moreover, 60%of the total labour force employed by the dedicated biotechnology firms is in researchand development (Enzing et al., 2002b).

ProductionThe total production in the Netherlands of pharmaceutical materials and productsequalled 5.6 billion euros in 2001 (Nefarma, 2003). This is an increase of more than165% compared to 1994 (figure 1-3) and an average annual growth rate of 15.3%.

Source: Nefarma Annual Report 2002, based on CBS figuresFigure 1-3 Production of pharmaceutical materials and products in the Netherlands in €millionMarketThe Dutch market for pharmaceuticals in 2002 consisted for 72.2% of branded (or in-patent) pharmaceuticals, for 18.5% of generic (or out-of-patent) pharmaceuticals, andfor 9.4% of parallel imports (Nefarma, 2003). Although the branded pharmaceuticalsstill dominate the market, the generic pharmaceuticals increasingly gain market share; itshowed a growth rate of more than 35% in 2002 compared to 2001 (Nefarma, 2003).This development already started during the 1990s due to the large number ofpharmaceutical patents that expired and due to the government policy of stimulating theprescription of generic pharmaceuticals.

The pharmaceutical market can be divided into approximately 102 smaller sub-markets,in which pharmaceutical companies compete with each other (CPB et al., 2002). Thesesub-markets often correspond to specific diseases. In the early 1980s, research byReekie (1981) showed that competition was limited as only a few pharmaceuticalcompanies dominated these sub-markets, resulting in oligopolies. In 73 sub-markets, onaverage three pharmaceutical companies possessed together over 75% market share.More recent research by the Netherlands Bureau for Economic Policy Analysis (CPB)confirmed these findings for the 50 largest sub-markets in the Netherlands in the period1994-1999 (CPB et al., 2002). However, this market dominance seems highlytemporary, as the market leader changes within every six years in at least one third ofthese sub-markets (Reekie, 1981; CPB et al., 2002).

The market for pharmaceuticals based on biotechnology is still limited; in 2001approximately 60 biopharmaceutical products were on the Dutch market (Nefarma,2002). Insulin is the largest market for biopharmaceuticals in the Netherlands andaccounted for almost 90 million euros of pharmaceutical expenses in 2000 and 2001.Nevertheless, the expenditures on biopharmaceuticals are growing annually and have anincreasing share in the total expenditures on pharmaceuticals (table 1-2).

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Biopharmaceuticals are expected to account for 15 to 20% of the total pharmaceuticalexpenditures in the Netherlands in the very near future (Nefarma, 2002).

Table 1-2 Biopharmaceutical expenditures in the Netherlands, in € million

1.4.3 The food industryThe agrofood industry is one of the main industrial sectors in the Netherlands andaccounts for approximately 10% of the national GDP (Ministerie van Landbouw,Natuurbeheer en Voedselkwaliteit, 2002). In general, the agrofood industry includes alleconomic activities related to production, processing and distribution of agrofoodproducts of national and foreign origin. The agrofood chain runs from the suppliers ofagricultural inputs to the consumers of agrofood products. Figure 1-4 shows its basicstructure. In this report the focus will be on the food industry; the processing,production and distribution of the food products and the production of ingredients forfood products. This is shown by the grey-shaded parts of the agrofood chain in figure 1-4.

Most well known Dutch companies in the food industry are Unilever, Numico, CSM,and DSM (ingredients), but there are also large dairy companies like Friesland CobercoDairy Foods and Campina/DMV. Unilever is one of the largest; it realised a worldwidenet turnover of 28.8 billion euros in food products in 2001 (Annual Report 2002). In2001, it invested 1,178 million euros in research and development of which 210 millioneuros were spent in the Netherlands (CPB, 2003). Friesland Coberco Dairy Food(FCDF) is one of the largest dairy companies. In 2001, it had a total net turnover of 4.3billion euros and employed over 12,000 people (website FCDF). In 2002, FCDFinvested 16 million euros in corporate research in the Netherlands (CPB, 2003).